Politics and private equity

Bringing the Bain

ON "MEET THE PRESS" this past Sunday, Cory Booker, the superhero mayor of Newark, compared Barack Obama's ads criticising the behaviour of Bain Capital under Mitt Romney to a Republican plan for new ads attacking Mr Obama for his association with Reverend Jeremiah Wright. “This kind of stuff is nauseating to me on both sides”, Mr Booker said. “It's nauseating to the American public."

Later in the day, back at his Newark office, a chastened Mr Booker sang a hymn to Mr Obama's leadership, kinda-sorta backtracked by saying he suspects that Mr Romney has not been entirely forthcoming about his business record, all while re-emphasising his "frustration" with negative campaigning. This guy has a future in politics. Naturally, the Romney campaign has already made a spot starring Mr Booker and his nausea.

Yesterday in Chicago, Mr Obama tried to turn this teacup tempest to his advantage by hitting Mr Romney again. It will be useful to read Mr Obama's remarks closely, as this line of attack promises to be a leading theme of his campaign:

My view of private equity is that it is, it is set up to maximize profits and that is a healthy part of the free market, of course. That's part of the role of a lot of business people. That is not unique to private equity. My representatives have said repeatedly and I will say today, I think there are folks who do good work in that area and there are times where they identify the capacity for the economy to create new jobs or new industries. But understand their priority is to maximize profits, and that is not always going to be good for communities or businesses or workers.

Mr Obama seems to be saying that there is nothing wrong with making a priority of profit-seeking, except that this sometimes hurts "communities or businesses or workers".

And the reason this is relevant to the campaign is that because my opponent, Governor Romney, the main calling card for why he should be president is his business experience. He is not going out there touting his experience in Massachusetts, he is saying, “I am a business guy and I know how to fix it,” and this is his business.

And when you are president as opposed to the head of a private-equity firm, then your job is not simply to maximize profits. Your job is to figure out how everybody in the country has a fair shot. Your job is to think about those workers who get laid off, and how are we paying for their retraining. Your job is to think about how those communities can start creating new clusters, so that they can attract new businesses. Your job as president is to think about how do we set up an equitable tax system so that everybody is paying their fair share, that allows us then to invest in science and technology and infrastructure, all of which are going to help us grow.

And so if your main argument for how to grow the economy is, “I knew how to make a lot of money for investors,” then you are missing what this job is about.

This is clever. The heart of Mr Obama's ploy is his tendentiously narrow definition of the business of business, which allows him to argue that the skill-set of a successful private-equity executive is useful only for profit-seeking, and thus irrelevant to the task of governing. Mr Obama then goes on to characterise the role of the executive branch in terms that would make James Madison flip his powdered wig. The task of the president of the United States of America, as Mr Obama seems to see it, is personally to oversee all industry everywhere in the 50 states (and Puerto Rico and Guam, et al) and ensure that fairness prevails, as the task of the father of a great family is to ensure that none among his children fall behind, that none get too small a piece a cake, that the roof over all their little heads remains in good repair. The president is a one-man countervailing force and dispensary of justice. How does smashing success in business ready a man for this role? It doesn't!

Indeed, the president is in the business of protecting people against profit-maximisers, such as Mr Romney, whose single-minded pursuit of efficiency so often hurts communities, businesses, and workers. If Bain is metonymous for the downside risk of capitalism, Mr Obama offers himself as universal Bain-relief:

It doesn't mean you weren't good at private equity, but that's not what my job is as president. My job is to take into account everybody, not just some. My job is to make sure the country is growing not just now, but ten years from now, 20 years from now. And so, to repeat, this is not a distraction. This is what this campaign is going to be about: What is a strategy for us to move this country forward in a way where everybody can succeed? And that means I have to think about those workers in that video just as much as I'm thinking about folks who have been much more successful.

This line of argument, as far as I can tell, is going to be the centerpiece of Mr Obama's case against Mr Romney. According to John Cassidy of the New Yorker,

The President and his strategists have fixed upon a populist campaign strategy that emphasizes inequality and unfairness, and which attempts to turn Romney, with his record as a “vulture capitalist” and his fourteen per cent tax rate, into the personification of these things. When Obama said “this is what this campaign is going to be about,” he wasn't joking.

Is this going to work? I don't know! But as Mr Booker's comments highlight, this does seem an extraordinarily negative approach, at least when compared to Mr Obama's 2008 message of hope and unification. Mr Cassidy goes on to observe that "Obama is clearly trying to convert the election from a referendum on his own record to a personality contest between him and Romney". That is to say, Mr Obama is not comfortable running on his record, and would rather run on Mr Romney's inferior likeability.

How will Mr Romney reply? I think he'll argue something like the following. First, he'll ask how well Mr Obama is doing by his own criteria, and make a case that he's doing terribly. That Mr Obama has botched the recovery is already a pillar of Mr Romney's campaign, and so we can expect they'll want to shift the focus back on Mr Obama's record. Second, Mr Romney will argue that he can do rather better than Mr Obama has done because his private-sector experience is not at all irrelevant. On the contrary, it's generally useful and obviously applicable to government, as Mr Romney's successful tenure as governor of Massachusetts shows. Outstanding business management is about a great deal more than maximising profits. It's about setting goals and then providing the leadership organisations needed to achieve them. If the goal is profit, an outstanding manager will be effective in achieving a profit. But if the goal is, say, ensuring that everyone in Massachusetts has access to affordable health insurance, an outstanding manager will be effective in achieving that goal, too.

If he's smart, Mr Romney will argue that Mr Obama's apparent inability to see the relevance of business experience to government just goes to show why he can't be trusted to achieve either the goal of sustained economic growth or the goal of leaving no one to suffer in the rubble of creative destruction. Efficiency matters, a lot, in business and government. If a business is inefficient, it is eventually either turned around or it is shuttered. If government is inefficient, it doesn't shut down. Rather, it makes promises it can't keep. When government makes promises it can't keep, people suffer; everyone does not get a fair shot. So, who is better prepared to identify and implement the reforms required to make sure government can keep its promises? That's the question. Mr Obama is desperate to convince voters that a record of success in making organisations more efficient is either irrelevant or nothing but a record of callous inhumanity to man, because it will otherwise become all too clear which candidate has the experience America needs to get back on track.

I certainly see the appeal of characterising Mr Romney as a sadistic "vulture capitalist" who takes pleasure in the suffering of those he gladly fires. But Mr Obama may be playing with fire. He has been careful not to impugn all profit-seeking, or even all private equity, yet it's hard to see how it's possible to attack Mr Romney for the alleged depredations of Bain Capital without implicitly attacking other profit-seekers responsible for similar labour-market churn. If Mr Romney's Bain was guilty of something other private-equity firms are not, it's not clear what it is. Meanwhile, Mr Obama's Bain offensive seem likely to help the market-loving right continue to belatedly warm to Mr Romney, who now has an excellent opportunity to soberly explain to America the righteousness and relevance of his business experience. Moreover, he can appear the bigger man by insisting on a clear-eyed comparison of his and Mr Obama's qualifications. I'm not at all sure, however, that Mr Romney has what it takes to make the most of this chance. Indeed, Mr Obama's challenge seems a perfect test of Mr Romney's political mettle. If Mr Romney can't defend against Mr Obama's attempt to turn his experience at Bain into a liability, he doesn't deserve to win.

For the majority of people, the idea of having a personal net worth in the hundreds of millions of dollars, or to consider $200k or $ 300k as small change, is conceptually from the other side of Mars.

Let's think for a minute.

One candidate is the handsome-as-a-toothpaste-commercial, very white, very privileged son of a former state governor, went to the best schools, and made his living in the rarest atmosphere of the financial world.

The other candidate was a mixed-race child in a country of pervasive and persistent racism, raised in relatively humble circumstances, who became President of the United States, basically from nothing, on intelligence and ability alone.

Tell me again which of these stories is symbolic of an America that holds out equal opportunity to all? Which of these stories is about an inheritance of influence, wealth and power?

Tell me again which of these men is likely to have some understanding of what it is like to be 50 years old, to lose your job,(and all your benefits), to know that you don't have anything like enough saved for retirement, and to know just as much that you have no hope of ever holding full-time employment again. You're facing the rest of your life in poverty, and the Republicans want you to believe that a gazillionaire, whose main job is to protect oil companies from having to pay their fair share of taxes or to stop destroying our environment, is the man who shares your pain.

Right.

Governor Romney may be a very fine man, but to suggest that he is not personally symbolic of the stark increase in inequality, and inequality of opportunity, in America, requires a level of wilful blindness not generally found outside of politics, correctional institutions, and mental asylums.

It is almost not worth replying to WW any more. Honestly man, take a leave, go work for the Romney campaign or his superPAC. You'll make a fine adviser, and if he wins I'm sure he'll give you some nice government job. If he doesn't please come back and bitch about it here. But really, your affection for the man makes you say things not truly worthy of your skills or of this paper.

Now to the issue at hand, I'm a capitalist myself, and apparently like the President we understand and value creative destruction. If you take company A with 1000 employees and company B with 1000 employees and combine them into company C with 1500, you've likely enhanced efficiency and profit in that company, in that sector of the economy and potentially in the economy as a whole. Good on you, you're good at the destruction thing, and you get a bonus. We all know Mr Romney is an expert at destroying jobs (or inefficiency, if you prefer) and we all acknowledge that this is an important part of capitalism.

But there are two key problems here if you want to claim this will make you a good POTUS in 2012. First, I think even WW would have to acknowledge that the sort of capitalists America needs most at this point in the economic cycle is the creative sort, like a Walton or a Jobs. Right on cue, Mr Romney admits his greatest advice as America's management consultant in chief would be to slash jobs in every governmental enterprise save one (ironically the one with the poorest economic efficiency). Only partisan ideologues cheer at this.

Secondly, the POTUS is CEO of the entire nation. Cutting 500 jobs from one sector might make that sector more efficient, but the nation as a whole may be LESS efficient until and unless you connect those 500 people to gainful employment elsewhere. Neither candidate can claim much direct experience in this skill, but at least Mr Obama demonstrates real awareness of the whole equation. For instance, he would probably say those individuals need temporary education and health care, while Mr Romney might eliminate them.

In short, feeding a family involves a lot more than being a good butcher.

"The president is a one-man countervailing force and dispensary of justice."

Seems like he's saying that the president is the leader of the Federal government, which is a several-million-man countervailing force and dispensary of justice. That's a not a hugely controversial statement, at least it wasn't for the entire period between Teddy Roosevelt and George W Bush.

The really disheartening part of this article though is that the one governmental achievement WW lists for Romney ("ensuring that everyone in Massachusetts has access to affordable health insurance") is entirely disowned by Romney's party and the base of his electorate. If he's going to beat back Obama's attack ads he will need an example of success in government that doesn't bring out boos at every campaign rally.

I think this is an unfair characterization of the President's point. Whatever level of government involvement you prefer, the role of the president or any other officeholder is to weigh the interests of various stakeholders in formulating policy. That doesn't have to mean she's personally repairing any rooftops--she may in fact be slashing all roof-repair funding--but the expectation is that she's doing so with an understanding of and concern for how her decision may affect everyone involved. This is not the job of the executive of a company. That job is to maximize value and there is little to no expectation that a CEO or other high level executive will stop to question how her decisions might affect the larger community (to say that effective managers "meet goals" is not untrue, I guess, but it doesn't seem to mean a whole lot). There's always a certain amount of BS involved whenever any pol speaks, but I do think there is a legitimate argument to be made that if you think that being a business executive necessarily confers some special macroeconomic insight that prepares you to participate in the formulation of national policy, you've misunderstood the job.

Except that he is running away from his governor track record. Basically, he wants to run as a Bain employee only (because what he did as governor might be unpopular to his base).

2) "That is to say, Mr Obama is not comfortable running on his record, and would rather run on Mr Romney's inferior likeability".

I would hope that President Obama (why the Mr. Obama at every sentence? Is he not the president?) would be willing to run on his actual record. The Romney strategy is to create a caricature of the president against whom he feels better running (in other words, blatantly lying about the president's record) - while his base swallows his lies whole. A few quotes from the former governor to illustrate my point:
1) "He made the recession worse, and last longer" - actually, the economy has been uphill since President Obama's policies have taken effect.
2) "He has added more to the debt than all previous presidents combined" - this is such a gargantuan lie that I am surprised he hasn't broken any laws against false advertising (Of course, I am not serious about the breaking laws bit).
3) "is the only president to ever cut $500 billion from Medicare." - absurd, especially coming from a man secretly in love with Paul "I'm a centerist" Ryan

"it's hard to see how it's possible to attack Mr Romney for the alleged depredations of Bain Capital without implicitly attacking other profit-seekers responsible for similar labour-market churn."

No, it isn't. The president explicitly states that profit-seeking is a good thing - just not the right mindset for the President (and I agree - a government should, if necessary, operate at a loss. Bain does not support fundamental scientific research - which is necessary for a country to maintain it's superiority 10 years down the line). While private equity firms are (mostly) looking to strip assets and make a profit asap, that is not the right motivations for someone who is planning for long term growth and prosperity. Accounting tricks are fine in running companies, for example (like share buyback to boost earnings-per-share) - but not when you are trying to help a country achieve long term success.

Finally, someone who supports the Paul Ryan plan, is looking to implement policies that directly benefits him while hurting most of the population, claims not to be a career politician (while conveniently forgetting to mention that it wasn't due to lack of trying), and has generally taken three positions on every issue does not deserve to be in an office where each statement he makes can have significant impact on the country (and world).

This President is trying to balance the budget but Republicans, thanks to their pledge to Grover Norquist, resist any and all attempts to raise taxes on the wealthiest. And with respect to the budget deficit the Republicans, thanks to two unfunded wars, huge tax decreases, and medicare changes, left a huge legacy of deficits. We need a fair and balanced approach to deal with deficit problems and resisting revenue increases and imposing huge cuts in spending which predominantly hurt the middle and lower class is clearly one sided.

The USA has never been a democracy. It is a Republic. It was deliberately engineered to avoid the so called tyranny of the majority, Madisons words I believe. If you want to identify the principal purvayor of mischief look no further than Congress. They have exploited every weakness in your Constitution to their advantage ever since the country was founded. Oh! by the way they do appreciate your focus on Obama. It allows them to quietly do what they have always done.

I think this is a great topic... Let's have Barack give us his version of operating a company...say Solnydra or Ener1 where Barack personally gives our money to firms with donor connections that then go out of business...against say Romney and Staples. Obama believes in large government grants to political donors who suck up the money and fail. Against actually making expenses meet revenue...something that Mr Obama is completely clueless about. Has Barack Obama every balanced expenses and revenue at anything he ever did. Can anyone give me an example? Please Anyone?

President Obama raised far more cash from hedge fund and private equity donors than any other candidate in the 2008 election cycle.
According to an analysis by the nonprofit group Open Secrets, Obama took in nearly $3.5 million from large private-equity donors that year — nearly twice what his general-election rival, Sen. John McCain (R-Ariz.), pocketed.
This makes the hypocrisy pointed out by Anderson Cooper on CNN last night with Ben LaBolt just a little more obvious. Jonathan Easley writes that this information makes it more difficult for Obama to execute an attack on Bain Capital for doing precisely what Obama’s own donors do, both 2008 donors and 2012 donors like Blackstone’s Tony James.

Democrats like Cory Booker, Harold Ford, and even Ed Rendell have taken to publicly question if not outright repudiate team Obama's ham-handed demagoguery. Another clear example of how Hopenchange has evolved into Hype and Blame.

Mr. Romney has strongly indicated his economic thinking is aligned with that of Paul Ryan, who has crafted an alleged budget document absent crucial details, which essentially would further cut taxes for America's wealthiest people, and also deeply cut programs that serve the elderly, poor and middle class. These include Social Security, Medicare and the food stamp program.

Mr. Romney's experience with Bain is beside the point. If his economic plan for the country is to infuse austerity such as the Germans have imposed in southern Europe, then America is headed for a second depression.

I don't think Obama has been much of a president, but handing the reins over to Romney is a truly frightening proposition.

Mitt Romney's Tax cuts for the SUPER RICH will ADD 5 TRILLION to the deficit...

What part of reducing a deficit 101 does he not understand?
You need to add revenue and reduce expenditures...??
So he needs to cut 5 TRILLION in the budget before he even breaks even.

A 5 TRILLION cut will KILL the economic growth and recovery as he would take money from the pensioners, the poor, the students (by doubling their interest rates), from the unemployed. (money that is spent in the economy)

He would also cut the education budget, and research which basically is cutting the key investments needed for future growth and competitiveness

As a business person he does not seem to know the basic principles of plus and minus.
He also never knew what INVESTMENT for future growth is or was.

The US needs a President (and congress, senate) that understands how to balance a budget and the importance of investments for future growth. Mitt Romney is not that person.

A President (or public servant) is supposed to do what benefits the citizens and what is best for the country not what is benefiting himself personally at the cost of the country or citizens,
Bain Capital only did what benefited them personally and never what was best for the company (country) or employees (citizens). Ie they borrowed loads of money not to invest in the company but to pay themselves hefty fees. That led many of its targets to file for bankruptcy and 10.000s of people lost their jobs while Bain Capital took as much as they could before tossing it away.
That is a HUGE difference.
And you do not want a President looting the country for personal gain which is exactly what Mr Romney did at Bain Capital.

Comparing the experience of a former community organizer to that of a seasoned top executive with respect to their abilities to run the country is laughable. And to imply that because Romney has been a top executive means he lacks compassion is just plain spinning by the lefties. And a hatred of capitalism which has served America extremely well over the decades.
It is about time that we took America back to the days when all capable people had to pull their own weight. Stop with the handouts using other people's money. America has become a nation of people with their hands out and palms upturned under the tutelage of Obama. After all that is what his inclination as a socialist is..
America desperately needs a president with the capability of balancing a budget, without which this country is doomed. We surely want to bring our finances into line before we are forced to by China, the current major lender. China will extract their pound of flesh if we become increasingly indebted to them. Anyone here think would play soft ball?

The President and most of the Public has the realistic view of Financial Firms and Mitt Romney's experience. Honing in on the Profit motif alone has destroyed many good businesses and people in the U.S.A.
Protecting people against these profit maximisers who are self-serving and destroy efficiency is justified.
Efficiency does not equal short term profits. Understand?

"It is highly desirable that a leader of opinion in democracy should be able to state his views clearly and convincingly. But all that the oratory can do of value to the community is enable the man thus to explain himself; if it enables the orator to put false values on things, it merely makes him power for mischief. " Theodore Roosevelt

your own words were "No, President Obama has made no attempt to balance the budget" His attempts, of which you say were none, were to attempt a compromise with Congress as his negotiations or talks with John Boehner.